MEBA Application Analysis General Success Factors

MEBA Application Analysis
Conducted by: JCN Marketing Solutions, LLC
For: City of Orlando Community Redevelopment Agency
Applicant Name(s): Mr. Corey Lamb, Mr. Maurice Campbell
Business Name:
Oopsy Scoopsy Frozen Yogurt Café
Project Address:
397 West Church Street, Orlando, FL 32801
Date:
May 13, 2011
_________________________________________________________________________________
General Success Factors
Many factors determine the projected success rate of a frozen yogurt business in today’s
market, including:
1. Capital: Sufficient start-up capital or lines of credit to cover costs for the first two years
of operations,
2. Financial Planning and Administration: Realistic financial projections, contained
costs, operating budgets, inventory controls and diligent accounting practices.
3. Viable Concept:
a. Customer Analysis to determine who exactly seeks and consumes frozen yogurt.
b. Menu offerings that are in-line with local target market demands, trends and taste.
c. Build-out and ambiance that caters to its target market(s) and fits in with
surrounding business concepts and retail atmosphere.
d. Product: High quality product, availability, feasible cost.
e. Operational Structure -- including talented and innovative employees for key roles
f. Pricing: Pricing structure that is in-line with other trade area retailers and
competition, and provides for a healthy profit margin.
4. Management Team: Previous experience in the food and beverage industry (preferably
quick-service), and/or retail management.
5. Location: Selection of a site with constant foot traffic, high visibility and easy access.
6. Marketing: A carefully crafted marketing plan that accounts for:
a. Customer segmentation analysis and demographic outline,
b. Trading area market characteristics,
c. Detailed strategies for reaching target markets through integrated, business-relevant,
cost-effective communication campaigns,
d. Marketing/communications budgeting, metrics, and return on investment analysis.
Funding Request & Purpose
Oopsy Scoopsy is requesting a MEBA Grant in the amount of $42,745 for expenditures in the
following categories:
1. Marketing Assistance: $37,850
a. $6,500 -- Direct Mail Campaign - 10,000 pieces for three (3) months in zips 32801
and 32802.
b. $20,800 -- O-Cartz Advertising – Includes full advertising wrap on two (2) O-Cartz
Taxi Cabs with a BOGO (buy one get one free) coupon distribution at major hotels
downtown.
c. $7,250 -- Television Advertising (Brighthouse) – 100 ads per week on Channel
13 and ESPN for 12 weeks, Includes production of two (2) thirty second (30:) ads.
2. Capital Equipment: $4,895
a. $2,285 -- Used Pinball Machine
b. $2,610 -- Retro Video Game (60 classic games)
Funding Purpose
Based on information provided on their business plan, the following are Oopsy Scoopsy’s
marketing objectives:
1. To bring in at least 800 people with each promotion,
2. Have 1,000 individuals sign up for its customer loyalty program during the first 12
months of operation,
3. To meet first year sales projections for both revenue ($300,000+) and product unit
sales.
The pinball and video game machines are considered equipment to create a “fun
atmosphere” for clientele.
Marketing Considerations
1. Market segments undefined -- Neither the Business Plan nor the Marketing Plan
clearly address the specific market segments (demographics, psychographics) that
Oopsy Scoopsy is targeting with its proposed marketing campaign. This is crucial for
best utilization of marketing dollars; especially with a new venture.
2. Marketing Plan – During the MEBA application process, Oopsy Scoopsy was given the
opportunity to submit a marketing plan to solidify and justify its request for funding.
Instead, the firm submitted a two page, nine bullet breakdown of projected marketing
expenses with a brief description.
MEBA Program – Application Analysis
Page 2
3. Challenges in Targeting Key Segments: Traditionally, self-serve frozen yogurt
appeals to health-conscious individuals or those who place emphasis in fitness & health.
Another key market segment is families with children. Given the nature of the location,
the limited number of high-traffic events at the Amway Center (with a large percentage of
attendees who walk directly to the venue without necessarily visiting nearby
businesses), the lack of significant residential or business walk-by traffic during nonevent days and evenings, and the significant distance for 32801 and 32802 residents to
walk to Oopsy Scoopsy in the evenings or weekends (without first walking by Oopsy
Scoopsy’s direct competitors), the company is finding it challenging to define its target
market(s).
4. Menu Diversification and Concept Modification – Oopsy Scoopsy is taking a new
approach to supplement its sales; appealing to the young professionals in the downtown
area by adding beer, wine and popcorn to its offerings, flat screen TVs, Video Games,
and providing a fun destination experience. This approach could attract customers
attending local events or working nearby during evening day parts that would otherwise
be slow. The inclusion of beer, wine and fresh popcorn could put Oopsy Scoopsy in a
different category that is somewhat similar to a sports-bar. However, the lease
agreement indicates that this property may offer only frozen yogurt and cookies. (pg. 4
of Lease Agreement) This could potentially pose future problems for OS. Presently,
customer ticket averages without beer or wine hover around $5 whereas with beer the
ticket average per customer is closer to $9.
5. Marketing Spending - Industry standards indicate that a healthy marketing expenditure
investment for a new frozen yogurt shop ranges between six (6) and 10 percent of sales.
However, a new business like Oopsy Scoopsy may consider investing up to 15% of
sales into marketing efforts during its first year. Monthly sales are presently averaging
$5,600; or $840 per month (approximately $10,000 per year) could be earmarked for
marketing. Oopsy Scoopsy’s proposed $37,800 marketing campaign is disproportionate
to what is needed to raise sales, market-share and awareness for a similar start-up.
Owners believe this “out of the box” marketing campaign may bring their sales closer to
the projected $25,500 in their business plan sales forecast. However, this sales forecast
is more applicable to frozen yogurt shops that are located in higher profile, consistently
high-traffic retail centers that cater to families and individuals that are looking for a
healthy frozen dessert experience. Hence, such a high expenditure in marketing may
not necessarily yield the return on investment that more targeted grass-roots efforts at
much lesser cost could potentially bring.
6. Television, Mobile Advertising and Promotions – There is a reason why most startup food and beverage concepts do not start by advertising on billboards (static or
moving) or broadcast media buys. These are very expensive options and do not
necessarily yield better results than other combined grass-roots and/or guerilla
marketing efforts that can produce same or better results at a much lower cost. These
marketing efforts include: Publicity, Online/Social Media (which is included in the
proposal, but with tech savvy counter employees needs not be so costly to implement),
strategic partnerships (co and cross-promotions with non-competing local businesses
that can refer customers to Oopsy Scoopsy and vice versa), Up-selling techniques to
increase ticket averages, Frequency tools to increase visits and monthly spending per
customer, Print promotions in targeted local publications, or cluster coupons such as
Val-Pac, in-store promotions, Refer a friend campaigns, and free online promotion
opportunities such as www.downtownorlando.com, and many others.
MEBA Program – Application Analysis
Page 3
7. Brighthouse Advertising Schedule – No specific media schedule has been defined for
the proposed three-month advertising campaign for Oopsy Scoopsy, and in looking at
the submitted planning rate sheet from Brighthouse, there are no listed $6 spots for
Channel 13 News or ESPN. The lowest price per spot is $25, available during the
midnight to 5 a.m. day part (Mon – Sun). This makes the campaign objectives costprohibitive and unattainable at $25,000 versus the proposed $6,000 plus the additional
cost of producing the two (2) ads ($1,200).
8. Coupons – Oopsy Scoopsy mentions distributing (BOGO buy one get one free)
coupons at major hotels in the downtown area. This offer may sound attractive, and
may generate some additional sales (if generated from visitors, these are usually onetime purchases for customers that may never return). For a business that is having
trouble breaking even, a 50% cut in profits per customer will further negatively affect the
bottom line, even if the food costs are guarded at 30%.
9. Possible Perceived Conflict of Interest – Oopsy Scoopsy and O-Cartz are owned by
the same company, L3 LLC. With heightened media interest in the MEBA Program and
high level of interest from constituents about the use of City of Orlando tax-payer dollars,
there is a possible increased risk associated with a perceived conflict of interest arising
from MEBA Grant dollars going to Oopsy Scoopsy to pay O-Cartz for mobile advertising
services at $20,800, because both operate under the same LLC ownership.
10. Grand Opening – Although a grand opening is mentioned in both the marketing plan
and business plan, no actual description of this event or target date has been set, and
the store has been open for six months.
Business Plan Observations
Oopsy Scoopsy had an opportunity to re-submit its business plan; the following concerns
remain despite these revisions:
1. Financial: Sales projections, promotions budgets, personnel plan, profit and loss
statement do not reflect the actual situation of Oopsy Scoopsy, and key expenses, such
as rent, insurance, utilities and more are missing from the three-year P&L; hence
creating a more favorable net profit projection than actuality.
2. Management Team: Neither of the two business partners has food and beverage nor
retail experience, although Mr. Campbell has an MBA and Mr. Lamb has human
resources management experience. However, there are key learning-curve issues
related to owning a frozen dessert shop (or any food and beverage business) without
relevant experience. Aware of this disadvantage, both partners plan on attending the
“Yo-Cream University” to enrich their operations knowledge.
3. NAICS Code: The NAICS code 722213 listed in Oopsy Scoopsy’s business plan
precludes alcoholic beverages.
4. Offsetting Seasonality Sales Decline: No indication on additional or alternate products
to offset the cooler Central Florida months (Dec to Mar) are mentioned in the plan,
except for coffee and beer. However, popcorn and wine are now part of the menu.
MEBA Program – Application Analysis
Page 4
5. Conflict in Positioning: The business plan focuses on “healthy consumables” -- this
may conflict with the selling of alcoholic beverages.
6. Breakeven analysis: Based on the most recent pro forma P&L submitted by Oopsy
Scoopsy, the total fixed costs are projected at $8,227 per month. The average check is
approximately $9 with beer/wine ($5 without beer/wine), and the variable cost is 30%.
Based on these numbers, the firm would need to serve 1,306 customers per month (48
per day) to break even at a $9 average check. If the average check is $5, OS will need
to serve 2,351 customers per month (87 per day) to break even – Monthly revenue at
$11,755.
7. Competitive Landscape: The business plan addresses one key competitor for Oopsy
Scoopsy in the national landscape (Pinkberry), but fails to recognize seven (7) or more
relevant competitors within its present 3-mile trade area, including: Mochi Frozen
Yogurt, IL GelatOne, Ice Twister, Ice Cream Sunday Parties, TCBY, Blazin’ Ice and even
indirect competitors such as Seven Eleven, which sells ice cream bars and other frozen
desserts. This could pose a real threat to Oopsy Scoopsy’s sales and market share.
8. Competitive Saturation: The OS business plan mentions that Pinkberry is not currently
accepting franchise applications. This is presented as a weakness for Pinkberry, but it
should be noted that this could be an industry threat that suggests over-saturation in key
markets.
Key Financial Ratios
JCN Marketing Solutions analyzed Oopsy Scoopsy’s 2010 (4Q) and 2011 (1Q) financial
statements and generated a set of important financial ratios, including: profitability ratios,
liquidity ratios, activity ratios, and leverage ratios. Table 1 summarizes Oopsy Scoopsy’s
financial ratios, and this is by no means an exhaustive list of the ratios that have been
developed to help analyze Oopsy Scoopsy’s financial position and the way that it conducts
business. It is however, representative of several key issues and trends.
Table 1. Oopsy Scoopsy’s financial ratios based on first two quarters financial statements.
Category
Profitability ratios
Liquidity ratios
Leverage ratios
Business Modeling
Ratio
Gross Profit Margin
Net Profit Margin
Return on Assets
Current Ratio
Debt Ratio
Altman Z-Score
Financial Ratios
-3.8%
-128%
-313%
.5
15.9%
-14.4
Gross Profit Margin = -3.8%
The gross profit margin is a basic ratio that measures the added value that the market places on
a company's non-manufacturing activities. We use this margin analysis to detect consistency in
Oopsy Scoopsy’s earnings, and how well it uses its resources to generate profit and value. In
MEBA Program – Application Analysis
Page 5
addition, the calculation of Oopsy Scoopsy’s gross profit margin helps to highlight the
effectiveness of the company's sales and marketing strategies and management. The formula
used in this ratio calculation is:
Gross profit margin = (Sales - Cost of Goods Sold) / Sales
Oopsy Scoopsy’s service nature of business requires a small amount cost of goods sold for
materials and labor. At a -3.8% gross margin, compared with service companies typically
operated with 15% to 30% gross margin, Oopsy Scoopsy’s ratio does not illustrate its ability to
persuade its customers of the value provided by the company. This value is, of course, created
by other costs such as operating expenses. In turn, these costs must be met largely by the
gross profit on sales. If customers do not place sufficient value on whatever Oopsy Scoopsy
adds through its products, there will not be enough gross profit to pay for the associated costs.
Net Profit Margin = -128%
The net profit margin narrows the focus on profitability, and highlights not just the company's
sales efforts, but also its ability to keep operating costs down, relative to sales. It is a good
practice to monitor the gross and net profit margin month by month or quarter by quarter to look
for trends. When net profit margins fall dramatically from the first to the fourth quarters, a
principal culprit is cost of sales.
The formula generally used to determine the net profit margin is:
Net Profit Margin = Earnings after Taxes / Sales
Oopsy Scoopsy’s negative net profit margin is due to the negative earnings after tax, in other
words, a financial loss as reported at the end of the first quarter of 2011. The discrepancy
between gross profit margin and net profit margin prompted us to look deeper into Oopsy
Scoopsy’s operating expenses, and it was concluded that an operating cost reduction is needed
to bring the two margins covary closer. When the two margins covary closely, it suggests that
management is doing a good job of reducing expenses when sales fall, and increasing
expenses when necessary to support production and sales in better times. In Oopsy Scoopsy’s
case, its generated revenue does not justify the high expenses as reported at the end of 1Q,
2011.
Return on Assets = - 313%
One of management's most important responsibilities is to bring about a profit by effective use
of the resources it has at hand. One ratio that speaks to this question is return on assets. There
are several ways to measure this return; one useful method is:
Return on Assets = (Gross Profit - Operating Expense) / Total Assets
This formula returns the percentage earnings for Oopsy Scoopsy in terms of its total assets at
the end of 1Q, 2011. The better the job that Oopsy Scoopsy’s management does in managing
its assets-to-resources available to bring about profits, the greater this percentage will reflect.
MEBA Program – Application Analysis
Page 6
Oopsy Scoopsy’s return on assets ratio clearly indicates improvements are needed to bring
operating expenses under control.
Current Ratio = 0.5
The current ratio is used to compare Oopsy Scoopsy’s current assets (those that can be
converted to cash during the current accounting period) to its current liabilities (those liabilities
coming due during the same period). The current ratio measures the company's ability to repay
the principal amount of its liabilities. The usual formula is:
Current Ratio = Current Assets / Current Liabilities
The current ratio is closely related to the concept of working capital. Working capital is the
difference between current assets and current liabilities. Oopsy Scoopsy is a cash-based
business; therefore the majority of its assets are in cash with point-of-sale receivables. At the
current ratio of 0.5, Oopsy Scoopsy does not illustrate the ability to convert its assets, or its cash
from point-of-sale to pay for its current liabilities.
Debt Ratio = 16.0%
The debt ratio gives us a quick measure of the amount of debt that Oopsy Scoopsy has on its
balance sheets compared to its assets. The debt ratio is defined by this formula:
Debt ratio = Total debt / Total assets
We use this ratio to gain a general idea as to the amount of leverage being used by Oopsy
Scoopsy. Oopsy Scoopsy has a low debt ratio signaling that it is less dependent on leverage,
i.e., money borrowed from and/or owed to others. One would suggest that Oopsy Scoopsy
should take on some debt to fund its operation to create more opportunity for growth. However,
the question remains to be answered if Oopsy Scoopsy understands the market and its target
customer enough to generate additional revenue once it takes on a leverage strategy.
Altman Z-Score = -14.4
The Altman Z-Score for Non-manufacturing (Service & Retail) is an overall indicator of a
company's risk of failing due to financial weakness. It consists of five combined calculations.
The resulting score is compared to the following scale:
Z-Score
Greater than 2.6
2.6 – 1.11
Less than 1.11
Probability of Business Failure
In good shape
Warning signs
Bankruptcy is possible
Using Oopsy Scoopsy’s financial data, we calculated the Altman Z-Score at -14.4. This number
indicates that there is a high probability that Oopsy Scoopsy might face tough challenges
ahead.
MEBA Program – Application Analysis
Page 7
Summary of Findings:
Oopsy Scoopsy’s financial analysis indicates a typical business startup environment, where
cash is used to finance the operation. The company has an aggressive business plan yet the
first six months of the operation have not yielded adequate revenue compared to its projected
business plan. However, various factors also play a part in this scenario:
1. The start-up nature of the Oopsy Scoopsy (whereas most food and beverage
businesses are not expected to show profitability during the first two years of operation),
2. The lack of sufficient financial data available to compare performance over the course of
several quarters or years;
3. The seasonality of the frozen yogurt industry may have caused a negative impact on
store’s sales upon opening in fall of 2010.
To each of these factors, the following observations apply:
1. If the management team had more experience in the food & beverage industry, a more
streamlined start-up operation with lower costs and more targeted projections (including
site selection) may have been achieved from the outset.
2. We performed our analysis based on six-month financial data, which we feel might not
be enough to highlight Oopsy Scoopsy’s full growth potential. However, general trends
can be noted with the analysis conducted.
3. Although the frozen yogurt business can be affected by cooler temperatures, Central
Florida offers generally mild temperatures even during its cooler months. In addition,
Oopsy Scoopsy was exempt from paying rent ($1,713.75) until May1, 2011, and the
management team knew of the seasonality issues prior to opening, and had the
opportunity to make adjustments to the menu with added products to stimulate sales.
I.e., hot chocolate, coffee, pastries, cookies, etc.
Recommendations
After a thorough review of the applicant’s financial statements, business plan and other
supporting documents, plus our meeting with the business owners, it appears that Oopsy
Scoopsy’s proposed utilization of MEBA Program funds at this time may not be in-line with what
can be achieved through other less costly grass-roots marketing efforts. In addition, the
following concerns remain:

Oopsy Scoopsy’s target customer is not clearly defined and all marketing strategies
should be designed and developed based on the findings of this segmentation analysis.

The marketing objectives stated in the business plan may not be realistic to the type of
marketing campaign being proposed.

The product pricing per ounce ($.59 cents) is not in-line with its trade area/local
competitors. The average price per ounce ranges from $.39 - $.49 cents.
MEBA Program – Application Analysis
Page 8

The location is not experiencing the high foot-traffic levels that are necessary to maintain
the sustained sales suggested in the business plan and pro forma statements, except for
event nights, when new (and possibly non-repeat) customers frequent the area.

A possibly perceived conflict of interest in the utilization of $20,800 in funds for O-Cartz
(owned by L3 LLC, the same company that owns Oopsy Scoopsy) has a high risk
potential to negatively affect the integrity of the MEBA Program and the applicant’s
reputation in the community.

Broadcast Media buys as proposed by Oopsy Scoopsy are not attainable at $6,000 and
would require instead an investment of $25,000 for the stated exposure objectives (12
weeks 100 ads/ week) plus an additional $1,250 for the production of two (2) ads.

Social Media Campaigns can be conducted for free, and pay per click campaigns do not
apply to a business that does not sell items online directly – in this case, other search
engine strategies may be more in line with Oopsy Scoopsy’s needs.

For this type of business, a one-time direct mail campaign, in conjunction with
subsequent cluster coupons (Val-Pac) or other inserts in small local publications can be
just as effective, if not more, than an individual direct mail piece mailed one a month for
three consecutive months, as suggested by the applicant.
MEBA Program – Application Analysis
Page 9